How Fintech Can Accelerate Ethiopia’s Energy Sector Transformation

By Tesfaye Mengistu

Tesfaye Mengistu is a Seasoned Business Developer with 14 years of diverse experience working with multinational firms in Technology Business Development, Technical Sales, Business Intelligence, Analytics, Contract Negotiation and Administration, International Sales and Logistics, and Product Development. Mr.Tesfaye holds a Bachelor of Science in Electrical Engineering, a Master in Business Administration and a Master of Science in Artificial Intelligence. He can be reach at teslan2009@gmail.com

Ethiopia has set out an ambitious goal of attaining universal access to electricity by 2024. The country has invested heavily in the energy sector to expand rural access and improve service provision. Ethiopia generates and consumes electricity, primarily from hydroelectric, wind, and thermal power sources. Ethiopia Electric Power produced 15,400 GWh of energy in 2022, 96.7% of which was produced by hydroelectric facilities, with the rest generated by wind and geothermal plants. Access to electricity in Ethiopia increased from 28% in 2016 to 44% of the population in 2022.

Realizing these ambitious goals requires employing innovative approaches and the active participation of the private sector.

In that regard, Ethiopia has untapped potential to use fintech to achieve its ambitious objective of universal access to electricity in the near term and increase the usage of renewable energy.

In this blog post, we will explore how fintech can play a pivotal role in accelerating the transition to renewable energy and achieving universal access to electricity in Ethiopia.

 

Energy consumption per capita (1980-2019)

1. Facilitating Energy Payment Systems and Smart Grid Integration:

Developing effective payment systems for energy is crucial for ensuring inclusive access. Financial technologies that specifically cater to the energy sector, such as mobile banking and digital payment platforms, can offer simple and secure payment options to consumers, especially those residing in rural areas. M-Kopa, a prominent PAYGO (Pay-As-You-Go) company in Africa, serves as a great example. M-Kopa utilizes mobile payment systems to provide affordable and easily accessible energy alternatives to off-grid households. By combining these financial platforms with smart grid technologies, real-time monitoring of energy consumption, accurate billing can be achieved. The Ministry of Water & Energy, Ethiopian Electric Power (EEP), and Ethiopian Electric Utility (EEU) should collaborate diligently to empower such specialized fintech companies, enabling them to play a significant role in Ethiopia. This effort will improve the nation’s overall energy efficiency and enhance access to energy.

2. Fintech-Enabled Energy Trading: Ethiopian fintech firms have the potential to change the energy sector by driving the implementation of energy trading platforms. Fintech enterprises can empower grid-connected consumers to actively participate in the renewable energy ecosystem by facilitating electricity trading between users and the Ethiopian Electric Utility (EEU). Consumers may generate energy employing their own energy sources, such as solar panels or wind turbines, and sell any extra energy back to the grid. As part of their technology portfolio, fintech companies can take the lead in developing and implementing energy trading platforms. In doing so, they can simplify the process and make it more profitable for energy prosumers to participate in the energy market.

3. Enabling Financial Inclusion for Renewable Energy Projects: Fintech platforms could offer avenues for financial inclusion, allowing individuals and businesses to invest in renewable energy projects. By leveraging digital platforms, fintech companies in Ethiopia can attract a broader range of investors, facilitating decentralized funding for renewable energy initiatives. Through crowdfunding campaigns, peer-to-peer lending, and digital investment platforms, fintech can enable easier access to capital for project developers. Financial inclusion can drive innovation, investment, and expansion in the renewable energy sector, propelling Ethiopia’s transition to sustainable energy sources. The EEU could coordinate with fintech companies to streamline its operations, enhance financial management, and optimize resource allocation. Fintech platforms can offer tools for automated billing for off-grid solutions developed by EEP on Powe Purchase Agreement (PPA) basis, customer management systems, and data analytics to improve customer management.

4. Leveraging Data Analytics for Optimal Energy Management:

Data analytics is a powerful tool that can optimize energy management and enhance renewable energy integration. Fintech platforms excel at processing and analyzing large volumes of data, offering valuable insights for decision-making. By harnessing data from diverse sources such as weather patterns, energy consumption, and grid performance, fintech can facilitate accurate forecasting, load balancing, and efficient utilization of renewable energy resources. Data-driven insights empower stakeholders to make informed decisions, which will enhance the stability, reliability, and cost-effectiveness of Ethiopia’s energy infrastructure.

 

In summary, the adoption of fintech solutions in the energy sector has the potential to transform Ethiopia’s energy landscape. By providing convenient, secure, and efficient payment options, fintech can help ensure universal access to electricity. By enabling financial inclusion for renewable energy projects, fintech can also help drive innovation and investment in the renewable energy sector. And by leveraging data analytics for optimal energy management, fintech can help improve the efficiency and sustainability of Ethiopia’s energy infrastructure.